The degree to which an airline will allow more reservations for a flight to be made than there are seats on an airplane.
Airlines face the dilemma of providing scheduled transportation services to the traveling public, whose demand for transportation is variable. During vacation periods, more passengers will fly to vacation destinations. During the beginning or end of any weekday, business passengers can be expected between business destinations. During a convention, air traffic to the convention’s location is predictable. The challenge that all airlines face is to maximize the sale of seats during those times when demand for transportation is high.
To determine the number of reservations that an airline will authorize to sell above the actual number of existing airplane seats, historical data of past departures are considered. These data include the number of passengers on similar flights during past time periods. Elaborate mathematical and statistical computer programs calculate these variables to predict as closely as possible the demand for seats.
The number of reservations that are then allowed to be sold is called the authorization level. On the average, the authorization level is set ninety days before departure, which is approximately how far in advance passengers typically begin to make reservations. Prior to the day of departure, authorization levels may be changed from their original estimates to take into account cancellations or changes that passengers have made to travel on other flights. On the day of departure, airline personnel initiate overbooking procedures for those flights that have more reservations than seats.
Overbooking planning assumes that all passengers holding reservations will show up for the flight. The first step is to determine by how many reservations a flight is overbooked. The second step is to arrange alternate flights for the extra passengers, preferably on the same airline. Other airline departures that are reasonably close to the flight’s departure may also be considered. The third step is to establish what the airline will offer to motivate passengers to volunteer to give up their seats. Most airlines offer two kinds of voluntary compensation, as it is called. Voluntary compensation can be a voucher, in the form of either a dollar amount that can be applied to another trip or an outright free trip at a later date.
Every passenger who checks in for the flight is told that the flight is oversold and informed of the voluntary compensation and alternate flights. If passengers are interested in volunteering to give up their seats, the airline personnel enters these data into the computer, so that the gate agents know who and how many volunteers have been generated. If all the seats are taken prior to departure, passengers to whom seats cannot be assigned are considered potentially to be involuntarily denied boarding. Other computer entries are made so that the gate agents know to whom they owe a seat. If passengers to whom seats cannot be assigned wish to volunteer, they may do so.
As the departure time approaches, it is the objective of overbooking planning that the number of volunteers will exceed the number of involuntary passengers. At thirty minutes prior to departure, those passengers with reservations who have not as yet purchased tickets may be cancelled from the flight. At twenty minutes prior to departure, the seats of those passengers who have not checked in for their reserved seat assignments are released. These entries establish the actual situation of the overbooking. Often the cancelled reservations and the released reserved seats free enough seats to accommodate the passengers who require seats. If they do not, other computer entries are made to give the seats of volunteers to those who still require them. If, after that step, all passengers have been accommodated, the volunteers are notified that their seats were taken. Either the gate agents or other designated agents then arrange the alternate flights and issue the voluntary compensation.
If, however, there still remain passengers who will be left behind, these passengers are due what is called involuntary denied boarding compensation. This type of compensation may be the same as the voluntary compensation that had been previously offered or some other form of compensation, depending on how soon the airline can get the passengers to their destination. If the airline can get the passengers to their destination within one hour, no compensation is due. However, the voluntary compensation is usually offered. If the airline can get the passengers to their destination within two hours, they are due 100 percent of the value of their one-way ticket or $200, whichever is less. If the two-hour time frame is not possible, they are due 200 percent of the value of their one-way ticket or $400, whichever is less. Airlines are obliged to provide payment on the day or within twenty-four hours of the denied boarding.
After the aircraft departs, the numbers of volunteer and involuntarily denied passengers are communicated to the departments that set authorization levels for their consideration and analysis.
Overbooking is both an emotional and a financial issue. No passenger wants to be left behind, and every airline wants to fill every seat. Although every attempt is made on the part of the airlines to accurately predict and analyze actual passenger numbers, the fact that customers make reservations and do not show up for their flights remains a sensitive issue.
Butler, G. F., and M. R. Keller. Handbook of Airline Marketing. Washington, D.C.: Aviation Week Group, 1998. Wells, Alexander. “Economic Characteristic of Airlines.” In Air Transportation: A Management Perspective. Belmont, Calif.: Wadsworth, 1999. An explanation of the issue of managing and matching changing passenger demands and patterns of booking transportation with unchanging aircraft capacities.
Airline industry, U.S.